In an ideal financial world, you wouldn’t need to borrow money. You have enough stashed for retirement and you’re living a comfortable financial lifestyle. Unfortunately, the reality is not even close to what’s supposed to be ideal. For most people, borrowing money is inevitable. And one of the key considerations to bear in mind when taking out a persona loan is to understand when a secured or an unsecured personal loan is better for your situation.
Secured Loans vs. Unsecured Loans
To answer the question of which is better between secured and unsecured loans, it’s nest to start by understanding what exactly the loans are.
Secured loans are loans that are secured against an asset or collateral typically your home, car or any other eligible asset. Loans of these types are available for people with an asset they can use to back their loan application. In general, you can borrow anywhere from £5,000 to £125,000 with a secured loan. The maximum amount you can borrow will often depend on your credit history, income and the worth of the property.
Unsecured personal loans, on one hand, do not need any collateral. This means the loan type is easier to avail. Processing of your loan application is also faster. You just need to meet the basic requirements and you’re application is good as approved. But since there’s no security involved, loan offers are significantly lower than what secured loans offer. These types of loans are ideal for people with no asset to use for collateral.
Why choose secured loans?
Both types of personal loans have their set of advantages and disadvantages. With secured loans, the biggest disadvantage is the risk of repossession. If you used your home, for example, for a mortgage loan, the lender has the legal right to repossess the property in the event of nonpayment or default.
But while risky, secured loans are not without its advantages. In fact, secured loans are often the more recommended option because of its lower interest rates and more flexible terms. With a secured loan, you can borrow a larger amount of money because there’s security involved as part of the credit agreement. Repayment terms are also longer, sometimes up to 25 years depending on the type of secured loan you applied for.
If you are in need of a large sum of money and you have collateral you can use for the loan then secured loan may be the best option to meet your financial needs. It’s risky but it’s also low cost. You just need to make sure that you can handle the monthly repayments to avoid repossession.
Why choose unsecured loans?
If you don’t have an asset you can use for collateral, unsecured loans come as handy alternatives to secured loans. With unsecured loans, the biggest disadvantage is the smaller loan offers. In general, you can borrow anywhere from £1,000 to £25,000 in the UK provided that you have a good credit score and has a steady income.
Unsecured loans are also not the cheapest loans available in the market. In fact, interest rates are often higher than that of secured loans because of the high risks the lenders are involved in. When a lender lend money without collateral, they offset the high risk by raising the internet rate. Then there’s also the hidden fees and charges to worry about.
In any case, unsecured loans are accessible personal loans you can rely on to meet a wide array of personal needs from medical expenses, car repair, overdue bills or rent and many more. Best of all, you don’t need to worry about the risk of repossession.